Monday, February 04, 2008

Paperstand

The WSJ reports that Google (GOOG) CEO Eric Schmidt called Yahoo (YHOO) CEO Jerry Yang to offer his co's help in any effort to thwart Microsoft’s (MSFT) unsolicited $44.6bn bid for Yahoo. The approach Fri from Google came as Yahoo is assessing its options for responding to Microsoft's aggressive "bear hug" bid, which has sent aftershocks through the media and technology industries. Ppl familiar with the matter say Yahoo's board, which conferred by telephone Fri, hasn't taken a position so far and no rival bids have emerged yet, though it remains possible some will. It is considered unlikely that Google would itself bid for Yahoo b/c of regulatory concerns related to their large shares of the search and online ad mkts. But the ppl familiar with the matter say Google could play a role in attempts by others to outbid Microsoft, or by Yahoo to remain independent. Google could potentially offer money, or guaranteed rev in return for a Yahoo advertising outsourcing pact, under that scenario.

“Heard on the Street” column out saying that it is looking less likely that outfits such as ITT Educational Services (ESI), Career Education (CECO) and Corinthian Colleges (COCO) will be able to withstand the impact of a credit crunch and a possible recession. Even bullish analysts have trimmed earnings expectations to reflect these dangers. Shares of these co’s took a big hit two wks ago after Sallie Mae (SLM) told them it was pulling back from lending to some of their students. Private lending accounts for 10-30% of rev at these schools. Sallie Mae's retrenchment, resulting from a renewed focus on credit quality, could force prospective students to scramble for loans and pay more when they get them. The move "came as a surprise and suggests that tightening in the student-loan mkt will have more of an impact on some co’s than previously expected," Merrill Lynch said in a recent report.

The Financial Times reports that the leveraged loan mkt begins the week in “disarray” following the collapse of efforts to syndicate $14bn of the debt used to finance the $30bn buy-out of Harrah’s Entertainment (HET), bankers say. The group of banks backing buyers Apollo Mgmt and Texas Pacific Group are having trouble selling on the LBO debt to 3rd parties. With the bulk of the debt remaining on their books, the banks are sitting on a sizeable loss. The freeze in the debt mkt means they now face larger potential losses on other big buy-outs, such as BCE (BCE) and Clear Channel Communications (CCU), and will be more desperate to get out of the financing commitments on those deals. Banks are already saddled with more than $150bn of unsyndicated debt, most of it LBO-related, according to S&P data.

The Globe and Mail saying that according to the credit-default swaps (CDS) mkt there's at least a 70% chance that the $35bn BCE (BCE) buyout deal succeeds. Many stock mkt investors clearly believe the deal is likely to fail. The stock finished Fri at $36, well below the $42.75 that Ontario Teachers' Pension Plan and its partners agreed to pay. CDS prices are near “levels that are all-time highs for BCE bonds, which is indicative of the fact that the credit mkt still expects that BCE will be a highly leveraged entity and therefore the deal will be consummated,” said Dan Barrett, of Tradition Group.

San Jose Mercury News reports that Yahoo plans to turn off its subscription music service and refer customers to RealNetworks' (RNWK) Rhapsody, the co’s are expected to announce today. Music remains an important area for Yahoo and its users; its music site gets about 22m unique visitors each month, noted Ian Rogers, VP of video and media applications at Yahoo. But in the fall, the co decided to de-emphasize its service, he said. Yahoo decided it could have a music interest and information site without actually running a music store or subs service. "This is about focusing in the right places," Rogers said. "The whole point is we wanted to get resources for working on different things." RealNetworks currently has just 2.75m subs for all its various music offerings, including Rhapsody.